ACC 213 Chapter 2
When predetermined overhead rate is applied based on capacity there will typically be larger amounts of overapplied overhead. True or False?
False
The adjustment for an Underapplied overhead....
Increases cost of goods sold AND Decreases net income
What is an essential quality of an overhead allocation base?
It must be common to all of the companies products and services
Companies that make many different products each period use what costing method?
Job costing
When all overhead is assigned using direct labor hours, the company will choose to use a ----- predetermined overhead rate.
Plantwide
The Predetermined overhead rate is calculated....(when?)
Before the period begins
The formula for applying an overhead to a specific job:
Predetermined overhead rate x Amount of allocation base incurred by job
designing and advertising a product are all __-level activities
Product
Total estimated overhead at capacity is generally larger than the total estimated overhead at the expected level of activity. True or False?
True
How to find the total cost of a job?
direct materials + direct labor + predetermined overhead rate x direct labor cost (overhead)
How to find the activity rate for direct labor support?
estimated overhead / expected activity
Predetermined Overhead Rate Equation
estimated total manufacturing overhead cost/estimated total amount of the allocation base
The average manufacturing overhead cost per unit usually varies from one period to the next because.....
fixed manufacturing overhead remains constant in total, even if production changes
In a system that uses multiple predetermined overhead rates, overhead is applied......
in each department as jobs proceed through the department
Why do companies use a predetermined overhead rate rather than an actual overhead rate?
Because an actual overhead rate is not known until the end of the period
In the Formula y=a+bx, the a refers to.....
Total Fixed Manufacturing Overhead
Companies assign costs to products and services to
1. Value Ending Inventory 2. Establish selling prices 3. Understand product profitability
A normal cost system assigns overhead to jobs using....
A Predetermined overhead rate
What is the most common approach to product costing throughout the world?
Absorption Costing
What is an example of a costing method that would not be a good allocation base for manufacturing overhead?
Accounting hours
In activity-based absorption costing, what causes the consumption of overhead resources?
Activity
an activity measure in activity-based costing is used as a(n) __ base.
Allocation
A job-order costing system may inaccurately assign costs to jobs due to......
An inappropriate allocation base
What are the three costs that makeup a job?
Applied Manufacturing overhead, Direct Material costs, Direct Labor Costs
Underapplied Overhead =
Bad (Decrease Net Income AND Increases the Cost Of Goods Sold)
setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of __-level activities.
Batch
Costs at the batch level depend on the number of....
Batches Processed
When predetermined overhead rates are based on capacity, critics suggest that the cost of unused capacity should.....
Be disclosed separately on the income statement
The adjustment for an overapplied overhead....
Decreases cost of goods sold AND Increases net income
Underapplied and overapplied overhead is the....
Difference between overhead applied to work in process and the actual overhead
Labor costs that can easily be traced to a job are called....
Direct Labor Costs
An activity cost pool accumulates costs for how many activity measure(s)?
Exactly One
Job-order costing can only be used in manufacturing firms. True or False?
False
Multiple types of overhead are included in the predetermined overhead rate. True or False?
False
Overapplied Overhead =
Good (Increase Net Income AND Decreases the Cost Of Goods Sold)
Direct Material costs are recorded on the job cost sheet when.....
Materials are issued to the job
The type and quantity of materials to be drawn from the storeroom and the job that will be charged for the materials is specified on the --
Materials requisition form
Activity based absorption costing (more or less) than a traditional approach.
More
The process used to assign overhead costs to products is called
Overhead Application
The predetermined overhead rate is multiplied by the actual allocation base incurred by a job to find.......
Overhead applied to the job
When the predetermined overhead rate are based on a budgeted activity.....
Products are charged for resources they don't use and unit product cost fluctuates depending on the budgeted activity.
When all of a companies job sheets are viewed collectively, they form what is known as a(n)
Subsidiary Ledger
What is an example of a job that would not be considered a job in a service firm that uses job order costing?
The tax department in an accounting firm
an hour-by-hour summary of the employee's activities throughout the day is called what?
Time Ticket
Each department may have their own pre determined overhead cost. True or False?
True
One reason to use a predetermined overhead rate is to eliminate the effect of seasonal factors. True or False?
True
Too much fixed overhead may be applied to products when the predetermined overhead is based on an estimated amount of activity. True or False?
True
What is a cost driver?
a factor that causes overhead costs to occur
Overhead Application is the process of.....
assigning manufacturing overhead costs to jobs
Allocation bases that do not drive overhead costs....
can cause product costs to be distorted
Costs assigned to units of product under absorption costing include:
fixed and variable manufacturing costs
what are 3 typical cost drivers?
flight hours, machine hours, and computer time
What is a job cost sheet?
records the materials, labor, and manufacturing overhead costs charged to that job
What is an activity cost pool?
relates to a single activity measure in the activity-based approach.
The activity based approach tends to....
shift costs from high-volume to low-volume products
What is the X in the formula y=a+bX
total amount of the allocation base
How to calculate the unit product cost using the job cost sheet?
total job cost / number of units produced
The average manufacturing overhead cost per unit tends to.....
vary from one period to the next
To keep track of labor time and costs, many firms have replaced -- -- -- with -- --
Paper time tickets with Computerized systems
What is an example of a(n) direct material in a service firm that uses job order costing?
Paperwork at a law firm
A Bill of Materials Contains the -- and --
Type of each direct material needed to complete a unit of product AND Quantity of each direct material needed to complete a unit of product